Corn commentary: Corn futures found strength on Monday from a firming Dow Jones and crude oil despite the higher dollar. Bullish to corn is the anticipated harvest delays this week, west to east. Also bullish to corn are early warning signals of less than inspired spring planting intentions by China as its government plans to buy grains to support prices to keep farmers in the business of farming and not uprooting for work in neighboring cities.
Bearish to corn futures is a very weak beginning to 2008-09 exports sales (55% behind its five-year average) and global feed wheat competition. Feed wheat consumption for 2008-09 is forecasted to be 30% higher to a record level 123.7 million metric tonnes vs. year earlier levels of 94.9 million tonnes in 2007-08.
After the close and before the Monday evening E-CBOT electronic trade the National Ag Statistics Service estimates the corn harvest at 29% vs. yr ago levels of 58% and a five-year average of 53%. The trade's pre release estimate was looking for 35% complete and these results are viewed as bullish to futures.
Corn technical commentary: Dec corn's increase in price on Monday was on lighter volume suggesting recent gains may not hold.
Vital Technical Indicator: The next projected major turn day is forecasted for Tuesday October 21.
Trade Idea(s): Stand Aside.
Option Strategy(s): Buy 1 370 call @ 32 Risk to 17. Obj 60
Special report I: Allendale clients have inquired about the prospects for planted acres of corn 2009. We have completed research that holds some very interesting results about the corn acreage needs for 2009 plantings. Allendale's findings are based on trend demand and yield dating back to the late 1990's. Since 1997 year-on-year demand has increased in nine of eleven years with a minimum increase of 2.3% and a maximum increase of 14%. Only two years had demand decreased by an average of .65%.
Based on trend yield of 154.5 bushels per acre and just to maintain present end stock projections of 1.154 billion bushels, corn plantings need to increase from 2008's 86.9 million acres to an estimated 90.3 million or by 3.4 million acres.
If for example, end stocks were permitted to fall precipitously to 800 million bushels, which would represent the second lowest on record dating back to 1980, then new acres planted would need to increase 800,000. Provided the weakening 2009 Dec corn futures and less than impressive fall in fertilizer, corn seed and various other key inputs, what are your immediate plans for 2009 plantings? Will the U.S. farmer be able to secure 3.4 million new acres in 2009, just to maintain the second lowest end stocks to use on record dating back to 1980? Allendale would appreciate to hear your comments. (800) 551-4626
Special Report II: six of nine recessions since 1950 began the year after a presidential election. Two of nine reached its peak during an election year. The two years when the recession peaked during an election year were 1960 and 1980. Allendale's question is, what impact did these two periods of time (1960 and 1980) have on total grain use and even more specifically of the total use, what impact did the recession peak during an election year have on exports. We included within the research study how demand materialized the year after the election-peak recession.
We lead with wheat; in 1960 and 1980, both exports and total demand trended higher into the peak of the recession and election and continued the year after. The year after the election and peak recession in 1960 total wheat demand increased 6% with export demand increasing 9%. The year after the election and peak recession in 1980 total wheat demand increased 14% with export demand increasing 17%.
For soybeans, in 1960, total demand trended higher into the peak of the recession and election and continued the year after, however soybean exports slipped by 3.6%. The year of the election and peak recession in 1980 both total demand and exports fell but did correct higher the year after. In 1980, total soybean demand fell 12% then corrected 11% the year after the election and peak recession, exports fell 17% then corrected 28% higher the year after the election and peak recession period.
For corn, in 1960, both exports and total demand trended higher into the peak of the recession and election and continued the year after. The year after the election and peak recession in 1960 total corn demand increased 7.7% with export demand increasing 49%. However, the year of the election and recession peak and the year after 1980, corn demand and corn exports trended lower vs. 1979. In 1980 corn demand fell 4.3%, exports fell a half percent and in 1981, corn demand fell another 3.3% and exports fell another 16.5%.
Conclusion: based on the data above for peak recessions and election years, wheat may have the inside track for continued strong use heading into 2009, with odds for corn the weakest.
Soybean Commentary: Bullish to soybeans is the strength from the DJIA, crude oil and Malaysian Palm oil futures. Concerns are growing of harvest delays in the Midwest this week from frequent rains. Also bullish to soybeans is dry weather in northwest Brazil and flooding in the south. Bullish to soybeans is cumulative weekly export sales 6% higher, year on year, stifling ideas of a higher U.S. dollar crimping demand. Bullish to soybeans is a Midwest harvest, which has reached more than two-thirds complete, which may help signal a bottom in prices. Farmers are not willing sellers at declining prices. Crush margin profits continue to signal full production.
Bearish to soybeans is the lingering concern of a weak global credit crisis, which could still hurt demand for U.S. soybeans and its products.
After the close and before the Monday evening E-CBOT electronic trade the National Ag Statistics Service estimates the soybean harvest at 67% vs. yr ago levels of 72% and a five-year average of 74%. The trade's pre release estimate was looking for 75% complete and these results are viewed as bullish to futures.
Soybean Technical Commentary: Nov soybean futures had impressive gains on Monday but on weaker volume, which leaves technicians, suspect as to whether recent gains may hold.
Vital Technical Indicator: the next projected major turn day in store for soybeans is November 3, soybean meal Oct 23 and Oct 22 for soybean oil.
Trade Idea(s): there are no new futures only trade recommendations.
Option Strategy(s): Buy 1 940 call @ 42. Risk to 19. Obj 80
Wheat Commentary: Bearish to wheat is news Australia has locked a sale of 180,000 to Iran and France is loading its largest shipment in fifteen years, of wheat to Iran. Bullish to wheat is news Russia's #4 grade milling wheat price continues to fall to levels, which may be less than the cost of production. Add the UK and China to the list.
Be aware, even though Australia typically begins its annual wheat harvest in the month of October, forecasters are calling for rains in the key Western Australia producing state and the trade could view the rains as bearish to futures rather than causing harvest delays. Argentina's harvest begins in Nov and recent weather is beneficial to its reduced crop size.
After the close and before the Monday evening E-CBOT electronic trade the National Ag Statistics Service estimates the U.S. winter wheat planting at 79% vs. yr ago levels of 79% and a five-year average of 81%. These results are viewed as neutral to futures. Emergence of 60% compares to a five-year average of 58%. These results are viewed as bearish to July 2009 futures.
Wheat Technical Commentary: the technical trend remains down. Immediate resistance for CBOT Dec wheat remains at 5800.
Vital Technical Indicator: the next schedule projected major turn day in store for wheat is Monday, October 27.
Trade Idea(s): Dec CBOT Wheat: (10/21) Sell 1 @ 5940. Risk 6110. Obj 5480
Dec KCBT Wheat: (10/21) Sell 1 @ 6320. Risk 6480. Obj 5660
Dec Minn Wheat:(10/16) Sell 1 @ 6630. Risk 6790. Obj 6180
Option Strategy(s): there are no new options only trade recommendations at this time.
~ Joe Victor
The Dow Jones Industrial Average finished the day with a strong close. Today’s settlement was 9265, up 413 points on the session. As stated in Friday commentary, a solid close above 9000 could begin to add confidence to equities and commodities, but Allendale would like to see the Dow maintain 9000 for the week before getting too excited.
Energies: Crude oil finished up $2.40 for the session, which brings Crude to $74.25. This strength was in the face of a new contract high for the December Dollar Index futures. The OPEC meeting this week seems to be giving traders reason to buy as an output reduction is expected. What is not evident is whether we will continue to see buying come into this market if OPEC does cut production. Will we see a buy the rumor, sell the fact type attitude? This makes sense as it maintains the current down trend on the chart. Or will this be a turning point at a time and price in many markets where traders are looking for a bottom? Allendale feels this question is powerful enough to wait for an answer without jumping in to buy or sell based on chart points and will pull the current recommendation to sell at a higher price. Should Crude make a new low for the move, Allendale will still look to sell that weakness and will keep this recommendation.
Fundamental Commentary: Allendale has kept a close eye on the Natural Gas market basis the December contract. We have seen the price of Natural Gas come down from a contract high of 14.280 to a current price of 6.991. Our research also suggests that Anhydrous/Ammonia prices have about a six-month lag where we wouldn't expect input prices to come down until after most of next years needs have already been purchased. From a producer standpoint, we feel it is more beneficial to buy Natural Gas on the board rather than wait for cash prices to come down. The Natural Gas chart has much more risk to the upside than downside potential at this point, so odds say that convergence between Natural Gas and input prices will occur as the price of Natural Gas increases rather than the cost of Anhydrous Ammonia coming down. To put it simply, Natural Gas is cheap and Anhydrous is expensive. If we're going to buy, let's buy what has the odds of moving to a higher price rather than buying something now that has odds of coming down in price. One E-Mini Natural Gas contract will meet Nitrogen needs for 816 acres of corn at 150 units of Nitrogen per acre.
Technical commentary: Crude Oil posted an inside bar on Fridays session. Today Crude Oil traded above last Thursdays highs, which seemed to trigger stops as Crude accelerated into new highs afterward. Close-in support is seen at $74.15. Thursday’s lows of $68.57 will be the next level with further support at $68, $66.65, and $60.70. Resistance can be found just near $77, $80, and just below $88. Technically, the market is still in a downtrend and rallies are to be sold.
Trade recommendation(s): Sell 1 December Mini Crude @ $68.45 stop. Risk to $70.55 with an objective of $64.55.
Metals: Metals settled higher on the session, as Gold and Silver seemed to piggyback on strength from Crude Oil even as the Dollar Index made a new contract high. Some bargain shopping may also be taking place as we have seen Gold drop roughly $70 week-to-week on some profit taking and margin call selling. The metals will most likely continue to trade with a high level of volatility as the market decides between safe haven buying, long term buying as a hedge against inflation, margin call selling, and profit taking to invest in other relatively low-priced commodities. December Gold settled at $790, up $2.30 on the day. December Silver was $0.355 higher at $9.690.
Technical commentary: Support is found at $775 and $767. Resistance is $795, $825 and $838.
Softs: Softs traded weak today led by the large reversal in the Cotton market today. December Cotton traded as much as 2.2 cents/lb higher early in the day before finishing near the lows, which was down 3.26 cents/lb on the session. This makes a test of the contract low of 45.66 look a lot more likely from a technical standpoint. Only FCOJ and Lumber settled higher on the day.
Working trade: Bought 1 March Sugar 13.00 call (10/14) @ .62. Risk to .20 with an objective of 2.00. The call settled at .52 on the day.
~ Brian J. Splitt
Lean hog commentary: Mixed trade was posted today. Cash hog prices are trending lower but futures appear to have most of that factored in. Additionally in Friday's Commitment of Traders report we learned that while Index Funds continue to liquidate their longs we saw Commodity Funds (that trade long or short) actually buy for the week covered. We are attempting a short-term speculative buy if given the chance with an objective on filling the gap noted below. While current prices are below our fundamental projections, we will not attempt a big long-term buying program here.
China pork production update: Everyone knows we have had great pork exports this year with most of the credit given to China. In 2007, Chinese pork production fell a dramatic 10%. It was due both to high grain price based liquidation as well as to their Blue Ear Disease (a variant of PRRS). During 2007, their government embarked on a nationwide herd rebuilding effort. A recent update from their government showed that is paying dividends. In the first nine months of this year, slaughter was up 6%. That would imply current rates are likely 8% to 11% higher or so. Essentially they have just about taken care of the problem. In June our exports to China, mainland + Hong Kong, hit 140 million lbs. With the Olympics wrapped up the numbers for August were 36 million lbs. We are likely running about even with last year levels right now and could fall to under last year by the end of the year.
Lean Hog Technical Commentary: The trend is down.
Vital Technical Indicator: Next projected major turn day for lean hogs is October 31.
Trade Idea(s): Buy 1 Dec 5545, risk 5400, objective 5770.
Option Strategy(s): Sold 1 December $72 call at $2.20. Settled at $.12.
Live cattle: Live cattle futures started higher in reaction to Friday's bullish Cattle on Feed report and the stronger stock market. It was interesting to see they were not able to hold those morning gains even though the stock market continued to rally. This is also interesting to note especially after both the morning and the 3pm afternoon wholesale beef reports posted higher prices for choice and select. Traders are still trying to price in perceptions of lower beef demand in this strained economic environment.
DOJ files suit against Swift: The Department of Justice filed suit today to stop JBS Swift's pending purchase of National Beef. They suggest it would cause higher prices to consumers and result in too much control of live cattle prices. The agency is not stopping the pending purchase of Smithfield's Beef unit to JBS Swift.
Live Cattle Technical Commentary: The trend is down.
Vital Technical Indicator: Next projected major turn day is November 4.
Trade Idea(s): Stand aside.
Option Strategy(s): Stand aside.
~ Rich Nelson
www.allendale-inc.com
research@allendale-inc.com
The thoughts expressed and the basic data from which they are drawn are believed reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Commodity trading may not be suitable for recipients of this publication. This is not a solicitation of the purchase or sale of any commodities. Those acting on this information are responsible for their own actions. Any republication, or other use of this information and thoughts expressed herein without the written permission of Allendale, Inc., is strictly prohibited. Allendale Inc. c2008
